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Technical Update: Dow Jones Industrial Average

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Technical Overview

  • On April 12, it was discussed how the DJIA continues to falter at its 2018 Resistance (red trendline in Figure 1), and that the index is exhibiting resistance in the 24,500 – 24,650 area (see confluence of green candles with upper shadows ending at the two horizontal yellow lines).
  • On April 13, the index opened higher, moved to a high of 24,646 and subsequently fell sharply, experiencing a 400-point intraday swing (last red arrow). This was yet another retest of the 2018 Resistance and the upper boundary of the 200-point resistance range (upper yellow line).
  • Today, April 16, the index opened just above the 2018 Resistance, pushed higher to an intraday high of 24,675, before pulling back by 100 points by EOD. The index also closed above its intermediate-term support (violet trendline).
  • The short-term support, which carried the index higher since the April 2 low, is rising by roughly 90 points/day – now at 24,270.

Figure 1. Dow Jones Industrial Average Daily Chart

Implications

  • The move back above both the 2018 Resistance and the intermediate-term support is deemed constructive. A close above 24,650 will further strengthen the bullish thesis.
  • To the downside, if the index breaks its short-term support, a swift move lower is expected. The extent of the leg down will be dependent on the index’s location in relation to the 2018 Resistance. On one hand, if the index pulls back below the red trendline over the next few sessions, the decline may take the index all the way down to retest the Feb 9 & April 2 lows (23,350). On the other hand, if the index continues to move higher for another 300-400 points and only then breaks the short-term support, the subsequent leg down is expected to terminate at the 2018 Resistance (which will then serve as a support).

Outlook

  • Neutral with a bullish bias while the index is above the 2018 Resistance but below 24,650.
  • A move above 24,650, on a closing basis, will shift the short-term outlook to bullish.
  • If the index breaks the short-term support, outlook will depend on the location of the 2018 Resistance.

Featured image courtesy of Shutterstock.

 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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    Altcoins

    Crypto: Is Relative Value Investing Time Finally Here?

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    For at least the past six months you have been kind enough to listen while the topic of relative value in cryptocurrencies has repeated more than once.  Could it finally be happening? Things are certainly in place. It seems to show every time the price of Bitcoin or any of the altcoins suddenly spikes for no apparent reason.

    That is the time when investors buy crypto simply because there is no better value in things like stocks, bonds, real estate, gold or currencies.  So far this has not happened all that often, but things could finally be changing. The fact that crypto prices remain near 2018 lows, and with certain exceptions, the news has been pretty good, helps set the stage.

    Until now investors in conventional assets have been simply too content.  And why not, the economy in the US is humming at a 4.2% annual rate. The S&P 500 has tacked on another 8.5% so far and seems to be cruising through the traditionally volatile month of September to reach new records.  

    And here is the real tattle tale, the CBOE VIX is near 2018 lows around 11. Without going into all the details, the VIX is Wall Street’s traditional measure of investor fear.  During the 2008 financial crisis, the VIX hit 60. Back in February it was at 37. That was about the time the S&P 500 fell 10%. So get the idea: today, investors are too content.  That needs to change before crypto’s relative value shines through. Here is something to focus on.

    The key to the above average S&P performance has been the contribution of the tech sector. When you take out the near 22% increase from the market cap weighted S&P, well, you cut well over half of that performance down to only about 3%.  That still not bad, but it indicates a far more narrow market than smart investors should be comfortable with. What would happen to the VIX if the tech sector suddenly took a dive of 10%?

    Sound crazy? Hardly, a 10%+ correction in tech stocks has taken place three times just since 2016, so this isn’t a far fetched idea.  In fact Barbara Kollmeyer at MarketWatch just penned an article titled: Bad news is building for this once-hot tech sector.  If her views prove out, this could be the key to driving investors to some of the values offered by crypto.

    It all starts with the social media companies that form the backbone of the FANG stocks. Here is a sample. She opens with the thoughts of Tony Greer who heads TG Macro and who has a sour message on Twitter (TWTR) and Facebook (FB). According to Tony: “It’s finally time to be short social media” pointing out a “massive topping pattern.”

    While the stock market generally may not be experiencing traditional levels of volatility, lately tech stocks have charted a different course.  In referring to that change, Greer identifies September as a time of big change.

    “That period of volatility put in a big top and a double top in the social media ETF. Now it has broken its steepest ascending trend line, it’s broken down below all the major moving averages and they’re starting to curl over on top of it, which to me is going to cause another leg of a waterfall.”

    The final proof of technical weakness is shown in the Global X Social Media ETF that contains a handful of social media names from Facebook, Twitter and Alphabet. This little gauge is actually down around 3% this year.

    In addition to his technical observations, he points the negativity surrounding the Cambridge Analytica scandal, subsequent upbeat earnings, then news that the platform was losing users.

    Technology Is More Than Social Media

    Lest we look for just any reason to be buying crypto it is only fair to mention the obvious. So far this year the tech sector has managed to add 22% even with the substantial underperformance of social media.  Any notion of painting the world coming to an end would be misleading.

    However, technology has many interrelated links and sometimes when one sector is under pressure it can spread.  In the meantime the gap between overvalued stocks and depressed crypto prices is setting the stage for the search for value to have its day in the sun. So keep one eye on the VIX.

    Featured image courtesy of Shutterstock. 

    Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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    4.4 stars on average, based on 104 rated postsJames Waggoner is a veteran Wall Street analyst and hedge fund manager who has spent the past few years researching the fintech possibilities of cryptocurrencies. He has a special passion for writing about the future of crypto.




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    Analysis

    Pre-Market: S&P 500, Dow Hit Record High Amid Global Rally

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    The major global indices are marching higher in a concerted fashion today, as the risk-on shift that started after Trump’s trade announcement continues in earnest. Asian stocks were up, but not enthusiastic, while European equities are strong, with the major benchmarks being around 1% higher today. The US market is still the island of bulls, and with the surging past the January highs, all of the major indices left behind the deep correction that started with the VIX-induced crash in February.

    S&P 500 Futures, 4-Hour Chart Analysis

    The S&P 500 is also trading at its record high after the open, and although the Nasdaq is still shy of its respective all-time high, and small caps haven’t joined the party either, the technical advantage of Wall Street is striking.

    The Dollar’s dip is clearly helping risk assets globally, even as emerging markets are not particularly strong, since the rising US Treasury yields are making some investors cautious amid the risk rally.

    10-year US Treasury Yield, 4-Hour Chart Analysis

    The bond selloff, or yield surge, is arguably the most important trend of the current market, and as the Fed’s meeting will take place next week and there are no crucial events before it, the trend could even accelerate before the likely rate hike.

    Whatever happens, yields are already at multi-year highs across the curve, and the tighter credit conditions will likely further squeeze the most vulnerable countries in the next risk-off period.

    Euro Hits 2-Month High as Dollar Still Under Pressure

    EUR/USD, 4-Hour Chart Analysis

    Economic releases were clearly on the bullish side today, with British Retail Sales and the Philly Fed index both beating the consensus estimate. The British measure was a huge positive surprise and that helped the Pound and the Euro in hitting two-month highs against the USD, which has been drifting lower against most of its major peers during the current risk-on shift. The EUR/USD pair topped the 1.1750 level before pulling back slightly, while the GBP/USD pair is trading above 1.32 currently.

    Copper, 4-Hour Chart Analysis

    Commodities haven’t followed stocks higher today, with copper and the WTI Crude contract both losing some ground. Copper still failed to show meaningful strength, and it was hurt today by the relative weakness of the Chinese stock market as well.

    On the other hand, precious metals ticked higher, with gold edging closer to its one-month high near $1220, thanks to the weakness in the Dollar. Gold might be ready for a stronger rally, as its stability amid the rising Treasury yields is impressive following months of weakness.

    Featured image from Shutterstock

    Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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    4.6 stars on average, based on 348 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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    Analysis

    Crypto Update: Coins Settle Down After End-Of-The-Day Bitcoin Madness

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    While the short-term technical setup has been little changed in the cryptocurrency segment in the past 24 hours, a volatile dump&pump period made headlines in Bitcoin. The most valuable coin got smashed lower right before the futures market close, violating the $6275 support and plunging as low as $6100, triggering a downgrade in our trend model to neutral. BTC than surged higher a few minutes later and shot up to the $6500 resistance before settling down near $6400, where it stands today in European trading as well.

    The possible manipulation event (or simply a closing imbalance in the futures market) dragged the rest of the market with it, although the moves were less pronounced in altcoins, and today, the market has been calm across the board, with most of the majors sporting modest gains amid the improving sentiment. On a positive note, Ripple is holding on to its gains from Tuesday, and today’s new swing high triggered a buy signal, which is a much-needed positive sign for the still generally bearish segment.

    BTC/USD, 4-Hour Chart Analysis

    Bitcoin’s long-term outlook is unchanged but the quick recovery from yesterday’s spike lower is a plus for bulls, even as the $6275 level is still in focus and the coin still haven’t shown strong bullish momentum.

    With that in mind, traders should still be cautious with new positions, since the short-term outlook for the segment remains mixed, and BTC continues to trade dangerously close to the key long-term zone near $5850. Below $6275 further support is found at $6000, while resistance is ahead at $6500, $6750, and $7000.

    ETH/USD, 4-Hour Chart Analysis

    Ethereum continues to trade at a very important technical juncture, trying to establish a short-term uptrend after last week’s rally and avoid a re-test of the bear market lows. The fact that Ethereum remained stable amid yesterday’s Bitcoin move, and recovered to its short-term trading range is positive, but the coin has to show bullish momentum soon to remain on a short-term buy signal.

    A sustained move below $200 would warn of a re-test of the lows but a new swing high could open up the way towards $235 and $260, with further strong resistance ahead between $275 and $280. Traders could still enter new short-term positions, but full positions are still not recommended given the bearish long-term trend.

    Ripple Hits 1-Month High Above $0.35

    XRP/USDT, 4-Hour Chart Analysis

    Ripple is rallying again today, scoring a new high above the key resistance zone near $0.35 and triggering a buy signal in our trend model with the bullish swing. The next major resistance zone is found near the $0.42 price level, close to the dominant broad declining trendline, with a weaker short-term resistance level at $0.3750, the August spike high, and found at $0.32, $0.313, and $0.30. The coin is still on a long-term sell signal, despite the current move, and traders shouldn’t enter full positions here.

    LTC/USD, 4-Hour Chart Analysis

    Litecoin is trading in a very narrow range today, and volatility declined progressively in since the selloff two weeks ago, which will likely lead to a strong momentum move as early as the coming days. A bullish move would be important for the whole segment, as it could point to a developing leadership, with Monero, Stellar, and Dash also being in possibly bullish setups. Primary resistance is ahead at $56, while support is found near $51.

    Featured image from Shutterstock

    Disclaimer:  The analyst owns cryptocurrencies. He holds investment positions in the coins, but doesn’t engage in short-term or day-trading, nor does he hold short positions on any of the coins.

    Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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    4.6 stars on average, based on 348 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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